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India's Strong Ties to Iran Enable Regime
Friday, November 05, 2010

Today (November 5, 2010), US President Barack Obama is traveling to India. He will meet with Indian government officials to discuss a list of 41 companies which may violate US and EU sanctions against Iran. [1] One company on the list is Oil and Natural Gas Corporation Videsh Ltd (OVL), the second largest Indian company in terms of oil production and oil and gas reserve holdings. OVL is currently doing business with Iran and has plans to increase its activity with the Farzad-B gas field. The company wants the Indian government to ask the US president to exempt it from these sanctions. [2] A provision under the sanctions allows countries with inadequate resources to claim an exemption for current projects. [3] India argues that it is energy-deficient and dependent on gas and oil to satisfy a growing domestic demand for energy. [4]

India will take the Asian seat as a non-permanent member on the UN Security Council in January 2011. India’s last term was almost 20 years ago in 1991-1992. [5] In the next two years, India will take a more proactive role in international diplomacy. In a press conference, Foreign Minister S M Krishna said “India will be the voice of moderation and of constructive engagement.” [6] With this new position, India and its relationship with Iran will be put to the test.

Diplomatic relations

India and Iran have established a deep relationship since the end of the Cold War. [7] During the Cold War, India and Iran were aligned on opposing sides. Significant improvements in relations between the two countries began in the 1990s and continued after the 1993 visit of Indian Prime Minister Narashima Rao to Iran. The diplomatic contacts developed over subsequent years, resulting in the 2001 Tehran Declaration, laying the foundation for cooperation within the defense sector. [8] In January 2003, President Khatami travelled to India where both leaders signed the New Delhi Agreement, which evolved from the Tehran Declaration and further committed the two states to deeper levels of engagement including military cooperation. [9]

Iran plays an essential role in India’s national security strategy. With a consulate located in the port of Abbas in southern Iran, India observes the ongoing traffic of 60% of the world’s oil traveling through the Straits of Hormuz. [10] India also has a consulate located in Iran’s Baluchistan province along the border of Pakistan in order to monitor the country’s activities from the West. [11] In view of Iran’s close relations with Pakistan, it is imperative that India sustain Iran’s support regarding the status of Kashmir. Kashmir, a disputed territory controlled by both Pakistan and India, is the primary subject of tension between the two countries for at least the past 60 years.

Two major stumbling blocks in Iran-India relations are India’s slight disagreement with Iran’s nuclear program as well as India’s close ties with Israel. India, a member state in the International Atomic Energy Agency (IAEA) since 1957, serves currently as one of 35 states on the IAEA board. Under Western pressure, India voted in favor of two resolutions against the Iranian nuclear program in September 2005 and February 2006. [12] In the run-up to the votes, India lobbied European nations to lessen their resolutions. Experts assume that Iran’s situation may have improved because of Indian interference. [13]

Iran-India relations are further strained by India’s favorable relationship with Israel. Israel is not only the second largest arms supplier to India it also trains parts of the country's military personnel. The two countries collaborate in manufacturing rockets, defense systems and high-tech military hardware. [14] India and Israel also work together in the space market as India launched an Israeli-owned space satellite, TechSAR, in 2007, which led to sharp Iranian protests. [15] Strong ties with the US/Israel on the one side and Iran on the other puts India in the role of a potential mediator in the nuclear program conflict. [16]

Economic Relations

India-Iran relations are deeply embedded in energy as India is dependent on crude oil imports from Iran and Iran relies on India’s refining capabilities. [17] Iran currently provides India with 15% of its crude oil needs, which amounts to more than 2.5 million barrels per day. In this past fiscal year India imported 21 million tons of oil from Iran. [18] This 15% crude oil need is bound to increase as India’s economy booms. [19] In return, Indian refining companies provide Iran with 40% of Iran’s refined oil which Iran is currently incapable of producing. [20] In May 2009, it was reported that India increased its imports of Iranian crude oil in lieu of Saudi Arabian oil. [21]

Reliance Industries strops business with Iran

In May 2009, under US pressure, India’s privately owned refining company, Reliance Industries, stopped purchasing Iranian crude oil. [22] The company also said it would not renew any contracts to import crude oil from Iran in the fiscal year of 2010. In January 2010, it had reduced its imports from Iran by 83% compared to last year and it did not purchase any crude oil in February and March of 2010. [23] Yet, in 2009, Hindustan Petroleum Corp., a state-owned oil company announced that it would triple the amount of Iranian oil imports for the 2009-2010 fiscal year. [24]

While India said it would honor the UNSC’s latest round of sanctions against Iran, Resolution 1929 passed in June 2010, it still advocates for dialogue rather than unilateral sanctions and opposes additional unilateral sanctions from the US or EU. [25] The investments from Indian firms in Iran did not exceed $20 million in any 12-month period and therefore do not yet violate U.S. law.

In July 2010, the Indian government expressed concerns about the consequences the U.S. Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 could have on the country’s energy security and on Indian companies. Indian Oil Secretary S. Sundareshan asked companies such as OVL, IndianOil, Oil India Ltd, PetroLNG and Hinduja Group with investments in Iran’s energy sector to seek legal advice before signing any contracts. [26] IOC, OVL and OIL have plans to invest $ 5.5 billion to develop the Farsi block and there is another agreement among OVL, Hinduja Group, ONGC and Petronet to invest $ 10 billion in South Pars. [27]

In light of the IAEA’s September 2010 report, the US, EU, and other powers have expressed concerns about Iran’s nuclear program. India has not. Instead, India moved to exempt one of its joint-ventures from UN sanctions and supported a statement published by the 118-member Nonaligned Movement criticizing the report. [28]

Proposed 5.5 billion Indian investment in Farsi block

In June 2009, after an Iranian gas field in the Farzad-B area of the Farsi block on the Iran-Saudi border was discovered, a consortium of Indian oil companies including ONGC Videsh Ltd and its partners Indian Oil Corp and Oil India Ltd, proposed a plan to produce natural gas and construct a liquefaction plant to convert the gas into LNG (liquefied natural gas). The gas field is projected to hold in-place reserves of up to 21.68 trillion cubic feet of which 12.8 TCF is extractable. [29] Currently, OVL and IOC each have a 40% stake in the 3,500 sq km Farsi offshore block that was awarded to the consortium in 2002. OIL has the remaining 20%. [30]

All three companies of the consortium are on a list of firms contravening the provisions of US sanctions against Iran. [31] The consortium’s legal advisors maintain that the sanctions cannot prevent India from developing its venture in Iran though without appropriate financing it is impossible to pursue the project. India is hoping the US will be lenient and exempt the consortium from the most recent sanctions.

Iran-Pakistan-India Peace Pipeline

Because of India’s growing demand for energy, a pipeline was proposed in 1994 to deliver natural gas from Iran to India and Pakistan. The estimated $7.5 billion project is projected to initially transport 60 million cubic meters of gas daily, which could later increase to 150 million cubic meters. [32] From the outset, India has remained skeptical of both Iran’s proposed gas prices and Pakistan’s involvement. In September 2009, India withdrew from the project in favor of an Indo-US civilian nuclear agreement. [33]

Despite India’s withdrawal from the project and US pressure on Pakistan to also exit the program, plans for the pipeline between Iran and Pakistan continue. US and UN sanctions on trade with Iran have delayed pipeline construction. [34] It is expected to be completed by 2015. [35] There is some speculation as to whether or not India will rejoin the project. Presently, Iran and Pakistan remain open to the future participation of India and possibly Bangladesh. [36]

Underwater Gas Pipeline

Talks of an underwater gas pipeline among Iran, India, and Turkmenistan were held July 2010 during the two-day 16th Joint Commission, co-chaired by India’s foreign minister S M Krishna and Iran's economic affairs minister Syed Hosseini. [37] Because of India’s apprehension about Pakistan’s involvement in the IPI pipeline and subsequent withdrawal from the project, this pipeline will bypass Pakistan. Turkmenistan proposed that it transport gas to northern Iran while being supervised by India and Iran, in turn, transport gas to southern deposits in India by way of the Arabian Sea. [38]

The South Asia Enterprise Private Ltd (SAGE), which is set to develop the project, stated that the first leg of the pipeline will carry 31 billion cubic meters and will cost an estimated $4 billion dollars. [39] The submersible part of the pipeline will begin in Chabahar, an Iranian port city, and deliver gas in Gujarat, India. [40] This project is a large fiscal undertaking and will require international support. Italy has already expressed interest in supporting the project.

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